Good afternoon. My name is Krista and I'll be your conference operator today. At this time, I would like to welcome everyone to the Box Incorporated Fourth Quarter and Fiscal Year 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference over to Cynthia Hiponia. Cynthia, you may begin your --

Good afternoon, and welcome to Box's Fourth Quarter and Full Year Fiscal 2024 Earnings Conference Call. I'm Cynthia Hiponia, Vice President, Investor Relations. On the call today, we have Aaron Levie, Box's Co-Founder and CEO; and Dylan Smith, Box's Co-Founder and CFO. Following our prepared remarks, we will take your questions. Today's call is being webcast and will also be available for replay on our Investor Relations website at box.com/investors. Our webcast will be audio-only. However, supplemental slides are now available for download on our website. We'll also post the highlights of today's call on the X platform at the handle @BoxIncIR. On this call, we will be making forward-looking statements, including our first quarter and full year fiscal 2025 financial guidance and our expectations regarding our financial performance for fiscal 2025 and future periods, including our free cash flow, gross margins, operating margins, operating leverage, future profitability, net retention rates, remaining performance obligations, revenue and billings and the impact of foreign currency exchange rates and our expectations regarding the size of our market opportunity, our planned investments, future product offerings and growth strategies, our ability to achieve our revenue, operating margins, and other operating model targets, the timing and market adoption of and benefits from our new products, pricing models and partnerships, the proceeds from the sale of our data center equipment, our ability to address enterprise challenges and deliver cost savings for our customers, the impact of the macro environment on our business and operating results and our capital allocation strategies including potential repurchase of our common stock. These statements reflect our best judgment based on factors currently known to us, and actual events or results may differ materially. Please refer to our earnings press release filed today and the risk factors and documents we filed with the SEC, including our most recent quarterly report on Form 10-Q for information on risks and uncertainties that may cause actual results to differ materially from statements made on this earnings call. These forward-looking statements are being made as of today March 5th, 2024, and we disclaim any obligation to update or revise them should they change or cease to be up to-date. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from our GAAP results. You will find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release and in related supplemental slides, which can be found on the IR page of our website. Unless otherwise indicated, all references to financial measures are on a non-GAAP basis. With that, let me turn the call over to Aaron.

Thanks, Cynthia, and thank you all for joining the call today. Our fiscal Q4 results were in line with or above our guidance as we continue to see signs of stabilization in IT budgets in several of our core markets. We achieved revenue of $263 million, up 2% year-over-year, or 4% in constant currency. Operating margins of 26.7% were above our guidance and EPS of $0.42 was $0.03 above the high end of our guidance. In fiscal 2024, we surpassed a $1 billion in annual revenue, with operating margins of 24.7%, up 160 basis points from 23.1% a year ago. And despite the macroeconomic pressures on IT budgets, which persisted throughout FY'24, we are pleased with our ability to deliver margin expansion, reflecting our execution of the strategies we put in place to lower our cost structure while still investing for long-term durable revenue growth. In FY'24, we continued to bring advancements in our category-defining content cloud platform to the market. We launched Box AI in beta, a new suite of capabilities that natively integrate advanced AI models into the Box Content Cloud. We unveiled Box Hubs integrated with Box AI, which transforms how companies securely curate and publish content and knowledge across their enterprise. And we also made significant product enhancements in security and compliance, collaboration and workflow, while also further strengthening our ecosystem of partner integrations. As I reflect on the year ahead, it's clear we have an incredibly large opportunity in front of us. At Box, our mission is to power how the world works together, and the way work happens is changing more than ever before. We know that companies are looking to digitize and automate their businesses by modernizing and simplifying workflows, streamlining collaboration, and connecting their apps together. They are looking to leverage the…

Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. In fiscal 2024, we delivered another year of strong bottom-line improvements while laying the foundation for long-term profitable growth. We generated $1.04 billion in revenue, up 5% year-over-year or 7% in constant currency. FY'24 operating margin was 24.7%, up 160 basis points year-over-year and up 340 basis points in constant currency. We delivered non-GAAP EPS of $1.46, up 22% from $1.20 in the prior year. We also generated $269 million in free cash flow, a 13% year-over-year increase which enabled us to deploy $180 million toward our share repurchase program. As a result, we reduced fully diluted total shares outstanding sequentially in all four quarters of FY'24. As we continue to navigate this challenging macroeconomic environment, we remain focused on delivering higher top-line growth, generating consistent operating margin expansion and executing a disciplined capital allocation strategy. Turning to Q4, we delivered revenue in line with our expectations and operating margin and EPS above our guidance. Q4 revenue was $263 million, up 2% year-over-year or 4% in constant currency. Operating margin of 26.7% was 120 basis points higher than our guidance of 25.5%. EPS of $0.42 was $0.03 above the high end of our guidance and up 14% year-over-year. We ended the year with approximately 1,770 total customers paying us more than $100,000 annually. We continued to see strong demand for our higher-value product offerings. Our Q4 suites attach rate in large deals landed at 81%, up from 72% a year ago. Suites customers now account for 55% of our revenue, a significant improvement from 46% in Q4 of last year and from 51% in Q3. Even in this environment where IT budgets are tighter, enterprises recognize the value that our suites offerings bring to help them simplify, transform and…

Thank you. [Operator Instructions] Your first question comes from the line of Josh Baer from Morgan Stanley. Please go ahead.

Excellent. Thanks for the question. Wanted to ask about the acquisition of Crooze. Very interesting, getting into the no-code app development space. How significantly are you expecting to invest there? Really compete in that market versus maybe more limited around use cases centered on content. And then is a good way to think about that acquisition sort of thinking about what you did with the e-signature acquisition, kind of evolving into Box sign. Thanks.

Yeah, thanks. So really, really great and important point to clarify. So Crooze is 100% focused on no-code application and sort of custom interface development for content-centric workflows. So we are going to remain squarely focused on the content market. But when you think about the kind of workflows and business processes that enterprises have around content, you have digital asset management, invoice processing, contract lifecycle management, GxP-compliant controlled document management. And so there is hundreds or if not thousands of use cases that enterprises have around content-driven workflows. And traditionally, we've really kind of had our customers have to go build those workflows and the interfaces around those workflows off of Box. And so you had to do custom app development in some other kind of platform environment. The Crooze, as an independent company and as a start-up, really kind of proved out the use case of all of these types of use cases being built out on the Box platform in a no-code environment. So we got really excited about being able to bring them onboard. And what we're doing now is integrating their technology natively into Box. And in the coming kind of quarters, within this fiscal year, we anticipate having a new product that we'll be releasing built on the Crooze technology, that we'll be obviously sharing much more about throughout the year. And that technology and product will let our customers then in a very native fashion, go and create these types of interfaces and custom applications on top of Box. And so we've seen from their customer base so far is again, anything from there's major players in the commercial real estate market that use Crooze for commercial real estate lease portals. There is customers that are using it as their core portal for any kind of contract management. And so these are the kind of use cases that will now be natively built in the Box environment. From a monetization standpoint, right now, we have continued the business model that Crooze had previously, which is really kind of selling these Crooze implementations on a per-customer basis for the number of users or seats that our customer needs. And we will continue that while we integrate the technology. And then we'll be really kind of driving Crooze as an upsell vehicle within our customer base. So unlike Box Sign, where we included the core of Box Sign in all of our plans, we won't be doing that with the Crooze technology. We will be using this as an additional monetization lever, both in our sort of bundled pricing model, but as well as standalone capabilities as well. So we're really excited about what this could do from a monetization standpoint. And we'll be sharing a little bit more at the Financial Analyst Day in a couple of weeks around the strategy here.

Really helpful, Aaron. And just anything to call out as far as impact to revenue or expenses this year from Crooze? Thanks.

Yeah, so everything is sort know built into the model that we just laid out. We will be investing in the team certainly to go build out this technology. But given our philosophy around how we make R&D decisions, that will certainly be prioritized, but within the cost of envelope that we've already laid out. So, no changes on that front. And then from a kind of a revenue growth standpoint, this is really the year of building out the technology into Box and we expect it to provide a tailwind more in that medium and long-term from a pure growth rate standpoint. But overall, if you sort of step back and say, strategically what's happening, why is Crooze very important? It's really that combination of the no-code application development that Crooze brings with metadata views, plus the combination of AI and what we're doing in workflow. And together, I think, you see a real kind of new chapter in our -- what our product can deliver for customers, letting them go expand use cases into more of these enterprise content management spaces, as well as rip and replace legacy ECM solutions. So there is a nice kind of combined effect there, that we're going to be able to drive.

Great. Thanks.

Your next question comes from the line of Pinjalim Bora from JPMorgan. Please go ahead.

Hey, thanks for taking the questions. Congrats on the quarter. Aaron, what have you seen so far with respect to kind of adoption of Box AI? Maybe in terms of volume of queries that you're seeing within those users that are playing around or have adopted Box AI. Has that been tracking your assumptions? And have you seen instances where Box is coexisting with kind of other horizontal co-pilots at this point?

Yeah. So I'll address a few of the pieces in there. So first of all, obviously, as everybody knows, we just released Box AI in beta in Q4 and today is literally the day of GA. So it really was some of the more, let's say, leaning in early adopter type customers that were adopting it for the past quarter. We were looking at a lot of the usage patterns, seeing their use cases. The first set of use cases were sort of dominated by the core functionality we have today, which is summarizing documents quickly, extracting information from documents as a user is sort of reading that. So some powerful kind of end-user productivity use cases. But quickly we got feedback that probably the biggest areas of excitement, and these are things that we've been working on, is one the ability to ask multiple documents a question. So that's the multi-document kind of analysis functionality that we're working on, that will be embedded in our hubs product. For customers that have Box AI in their Enterprise Plus plan, they'll be able to ask questions inside of a hub of any number of documents. And so think about this use case of having a knowledge base where your sales materials are in that knowledge base or your HR materials are in a knowledge base, or any kind of equity research data. You can then set up these knowledge bases or hubs, make them available to employees or customers or anybody outside the enterprise, and then you can ask questions of all of your data. And so for those familiar on the call, that's effectively kind of a rag-as-a-service type approach that we're going to be delivering right out of the Box for our customers. So collect any amount of data,…

Yeah. Got it. One quick one for Dylan. Billings growth in constant currency was very strong coming above your guide. RPO seems like has accelerated both of those billings growth and RPO and constant currency seems like is running ahead of your revenue guide for the year. Maybe talk about the early renewal, how much was that of the influence for billings? And more broadly, do you see the 6% growth for this year as kind of a trough level going forward?

Yeah. So I would say, first to write that for both what we delivered in Q4 on our expectations for RPO, at least for next year, we do expect those to track ahead of revenue. And I think a lot of that, especially the kind of Q4 performance, in addition with the early renewal tailwinds that I'll address in a bit, is really due to the fact that we did see, especially in the back part of the year, a stronger performance overall, a stabilization and just much better execution. And so while the environment remains challenging, that is what gives us confidence as we talked about the stability, but calling kind of future improvements and some of those metrics in various top-line areas, including the net retention rate. As it relates to the early renewals piece for Q4, that had an impact of a couple of points to the growth rate. So even adjusting for that would have still been ahead of our expectations both on a reported basis and in constant currency. And as we mentioned, FX was a little bit more of a headwind, about a point more than we had expected going into the quarter. So overall, just a kind of stronger quarter in Q4 than we had seen earlier in the year, which is great to see.

Got it. Thank you.

Your next question comes from the line of Steve Enders from Citi. Please go ahead.

Okay, great. Thanks for taking the questions here. Maybe just to follow up on the last comments there about just kind of what you are seeing in the macro and deal environment. It sounds maybe this was pretty consistent with what you saw last quarter from some of the stabilization trends. But I guess, maybe as we -- just want to clarify that. And then also as we think about the outlook, I guess, what is kind of being assumed in terms of further stabilization or return to some improvement and how that's beginning to impact some of the net retention bottoming that you're calling out here?

Sure. So we'd certainly describe the overall environment in Q4, as you mentioned, as pretty stable with Q3. So there are some incremental signs of life and improvement and some customers leaning in a little bit more and getting excited about things like AI in particular. But the reality is it remains a pretty challenging environment. Wouldn't say that has really turned a corner based on what we're seeing. What I would say is that our execution in Q4 was stronger than in Q3. So as just one example, we called out in Q3 that there were some larger deals in Japan that we had been expecting to close that didn't ultimately close in Q3. We ended up closing just a very strong quarter overall, including those deals, and they had a very strong Q4 for us. We saw continued strength and great performance from the public sector in the US. And so there definitely, I'd say, within the business areas of improvement, which led to overall just a stronger outcome versus the prior quarters this year, but would describe the overall environment as fairly stable with what we saw in Q3. And then if you looked at FY'25 and how we're thinking about that, we are kind of assuming more of the same, that this environment remains challenging. And so we are not kind of baking in any sort of macroeconomic recovery into our expectations for FY'25. And really where we see the expected improvement in many of those top-line metrics, and you mentioned net retention rate is that we're now lapping some of the more challenging periods that we had, especially those that are trailing 12-month metrics like revenue growth, like net retention, where as you move through the year. And with that stability, we expect those metrics to kind of bottom out at those Q4 levels. And then for net retention, which you asked about in particular, you expect to end the year either at those levels or slightly above depending on how that shapes up over the course of the year.

Okay. Got you. No, that's helpful context. And then maybe on suites in particular, I think maybe heard less this call around the Enterprise Plus tier, the higher tiered solution this year. So, I guess, any maybe changes in how you're thinking about the tiering moving forward or how you're thinking about some of the adoption of those higher price plans?

Yeah, I did kind of call it out very briefly in my prepared remarks that we will be introducing a higher tier plan. So no change in that strategy. We'll add more color at our Financial Analyst Day around again kind of the contours of that plan. And again, the only reason we're not being super precise yet is just because we don't want to get ahead of our customers too much on that and we want to make sure that we're talking about it more generally when it's fully available. But you can get the sense that we will have additional higher tier functionality that will include some degree of higher tier AI functionality, some of this more advanced kind of workflow and content management features with Crooze, as well as other capabilities. So stay tuned and we'll share more at Financial Analyst Day.

Thanks. Perfect. Great to hear and looking forward to the event in a couple of weeks.

Yeah. Thanks.

Your next question comes from the line of John Messina from Raymond James. Please go ahead.

Hi, thanks for taking the question. This is John on for Brian. Just another one on Box AI. I realized it just went GA today. But I'm curious as it was in beta, how AI has impacted the pipeline for suites adoption, just any additional color we can get there?

Yeah, so we saw a pretty healthy number of customers that elected to move into Enterprise Plus, where Box AI was one of the biggest or bigger -- biggest contributing factors of that decision. So kind of across a wide range of sectors, size of companies, where again they wanted to have AI on their content for again being able to ask content questions, summarize information, be able to access multi-document AI as hubs becomes available, as well as our APIs. And because of our pricing model that we chose, you have to upgrade into Enterprise Plus to have access to that technology. So we saw that as a healthy contributor to the upsell motion. And we -- now with the product being in GA, we expect that just to continue throughout this year. And as we get a sense for even higher tier functionality that customers are looking for, whether those are higher performance models, the ability to kind of customize the AI in your enterprise, whether that's custom prompts or being able to create custom sort of kind of almost AI agents or use cases in your enterprise. That will be additional -- that will create additional ways that we can monetize in a higher tier plan from here as well.

Great. That's great color there. And then just on suites adoption overall, I think you've spoken to being on track to hit 65% of revenue by 2026. Is that still the right way of thinking about the cadence of adoption or has AI kind of accelerated that? And then how should we think about maybe the long-term, what suites can contribute to revenue? Thank you.

Yeah. So would say, that for -- and for a bit of context and going back, we would describe the suites momentum and penetration overall as certainly ahead of our expectations when we launched those suites. And even just about a year ago, pulled in the timeframe in which we expected to have the majority of our revenue coming from suites by a full year to the end of this year. And then, as you saw, we now have at the end of the year 55% of our revenue. So once again, kind of ahead of our expectations. And that's really being driven by combination of just the way that Enterprise Plus is resonating overall with the customer base as well as in Q4. And the reason for the big sequential step up was a few larger customers who had one to two products who were really convinced of the value of our full platform. So they upsold into E+. So kind of combination of the way new customers are being sold off the bat, as well as existing customers continuing to move over. And then so, overall I would say that, certainly the trend have been ahead of our expectations. We'll provide more commentary in terms of the forward longer-term expectations in just a couple of weeks at Analyst Day. But it is safe to assume that overall kind of the rate and pace of how we expect that to move in the market is faster than we expected a year ago or two years ago.

Thank you very much.

Your next question comes from the line of Rich Hilliker from UBS. Please go ahead.

Hi. Thanks for taking my question. On your prepared remarks, I think you highlighted a construction and a healthcare deal. I was wondering if maybe for my first question, if you could talk a little about your vertical strategy moving forward or any change to that sort of appetite? Thanks.

Yeah, there's a couple of little cut-offs, but I'll do my best to try and cover the essence of the question. If I don't, let me know. But essentially what we're seeing is, we do extremely well, really wherever there is a large amount of unstructured data in an enterprise, where that data needs to be secured. So it's often a compliance or a security kind of driven workflow. There is a lot of collaboration on that data, so it needs to flow between systems or between kind of internal or external parties. And so that aligns very well to many of the most regulated industries out there. So public sector, financial services, healthcare, life sciences, some often in kind of global manufacturing. So we want to put even more emphasis on some of these key verticals in the year and years ahead. Not obviously to in any kind of reduction in other verticals, but how do we really double down in some of these key spaces. AI, as an example, has a lot of great additional use cases when you go and mine through all of the unstructured data that those industries work with. So take for instance in the healthcare or life sciences, just being able to again automate or drive workflows in a pharma process or in banking for client on-boarding and wealth management services. So really, wherever there's a large amount of unstructured data or content, and you want to be able to process that, secure it, manage it, govern it, that's really what our platform is well aligned for and well aligned to. And that's where we're going to be kind of further doubling down in that vertical strategy.

Great. Thanks. I'll leave it there. Appreciate it.

Cool. Thanks.

Your next question comes from the line of Jason Ader from William Blair. Please go ahead.

Hi. This is Sebastien Naji on for Jason. Thanks for taking the question. Just one from me, really around competition. Aaron, I'm curious to hear how you think AI impacts the competitive landscape for ECM. Could we see increased pressure from vendors like a Google or Microsoft, who are maybe paying more attention to their historically limited FSS offerings? Now that there's a whole new universe of things you can do with that data, once you apply AI to it, there just seems to be a bunch of new ways that those guys can monetize this FSS data, especially given their leadership with AI, and that could push them to be more competitive with Box over the long-run. How do you respond to that?

Yeah. So I think, there is definitely elements where the value of unstructured data and content has gone up as a result of AI, and that's clearly a key point. And that means anybody well prepared to drive innovation on unstructured data should see this as a positive. At the same time, it means that a lot of the legacy solutions, the fragmented architectures, equally are now under greater threat because companies are going to want to get more value out of their content in this new AI-driven world. And so I think that becomes a positive for us within the customer base. And when you take a look at what we've done in the near term as well as what we've laid out from a roadmap standpoint, again the combination of Crooze interfaces for no-code applications, workflow automation, and platform-neutral AI, that can come from any of the vendors that are in the market. That's a pretty potent combination that doesn't exist elsewhere in terms of the names that you just mentioned. So we feel very, very strong about our competitive position and that's being reinforced every day within customer conversations. And then maybe the only kind of note I'd throw out there, one more on the platform-neutral approach, one of the big benefits that we have by not being in the model training game is that we actually want there to be a massive race between all of the tech companies on training and delivering advanced AI models, because we can then enable all of that innovation for our customers. And so when you're a client of Box, you don't have to choose between whether you want the best of Google or the best of Microsoft and OpenAI or the best of Amazon or Anthropic or IBM, you don't have to make that decision about where you move your data to get the value of those capabilities. By having your content in Box, it will work with all of the AI coming from those different vendors. And so this puts us, I think, in a very unique position. There's not really many cloud-based content platforms that are able to be as neutral as we are and certainly at the scale that we're at. So we think that's going to be a huge advantage for us in AI.

Great. Very helpful. Thank you.

Your next question comes from the line of George Iwanyc from Oppenheimer. Please go ahead.

Thank you for taking my questions. With the incremental sales and go-to-market investment you're highlighting for this year, can you give us a sense of where you're prioritizing the additions and how much is going into the direct sales force and how much into the channel and go-to-market efforts?

Yes. So you can think about the majority of that increase in sales and marketing spend going towards scaling programs to generate demand, which have been performing very well for us, especially on the heels of a lot of the optimizations we've made, in field marketing, in our digital channels, we've called out historically and efforts like that, including some investments kind of laying the foundation the scale of the partner and channel ecosystem. And then we will also be investing kind of given the demand trends that we're already seeing in the sales force and kind of growing that at a moderate clip. But you can think about the majority of the dollars being towards just overall demand generation versus kind of disproportionately scaling the sales force. And then you'll hear a lot more about the overall go-to-market strategy as well as details of where we're going to be making some of those investments at our Financial Analyst Day in just a couple of weeks.

And Dylan, maybe can you give us a bit more color on what you're seeing internationally? It sounds like you did catch up in Japan, but with the incremental FX headwinds that you're seeing there, how is the demand pipeline looking?

So it remains very strong. I mean when you talk about those areas that we will be growing based on where we are seeing strong outcomes as well as leading indicators. Japan, particularly the enterprise segment in Japan is absolutely one of those areas. And would note that even with the FX headwinds that we saw, really over the past two years, our Japan business grew the revenue generated by our Japan business grew in the mid-teens over this past year. So continuing to show very strong growth. And that again, is even including those FX headwinds. And then if you talk about international more broadly, I would say no real change in terms of what we're seeing in EMEA. I do think there's an opportunity, especially given some of those investments that we talked about earlier and, in particular, around the channel ecosystem that could really help kind of fuel our reach and ultimately kind of the business that we can generate over there, but would describe EMEA overall as certainly stable but stable at levels that we think are not quite commensurate with the opportunity that we have.

Great. Thank you very much.

Your next question comes from the line of Rishi Jaluria from RBC. Please go ahead.

Wonderful. Thanks guys for taking my question. Just one from me. Just turning back to AI and kind of starting to put some numbers around it. Number one, have you embedded any upside from AI, whether direct or indirect this year in FY'25 guidance? And then not to front run the virtual Analyst Day in a couple of weeks. But as you think about building out your longer-term targets, what are you starting to assume in terms of actual AI revenue as you build out those targets? Thanks.

Yes. So we'll probably maybe answer the second one around the Financial Analyst Day as you have a sense of kind of how we're laying up our continued view on the model. But maybe the -- answering the first question will also kind of tie to that. So we have seen the upsell trends that we have from customers moving into Enterprise Plus with Box AI as an additional catalyst. And we have only about 1/4 of data to look at, but we certainly are able to continue to extrapolate that out into this year and somewhat beyond. We also want to be somewhat conservative around kind of baking that in because there's still variability, it's still an early product. So I would say it's conservative in the sense of we're not expecting any kind of outsized kind of dynamic because of AI, but we are seeing it become a catalyst to drive Enterprise Plus upsells. And then I think that maybe the X factor in all of this would be more platform consumption from AI that isn't particularly embedded. And so that's obviously what we're going to be driving this year, and we'll be talking more about some of the platform consumption dynamics that we want to drive, but we see that as sort of upside in the medium term.

All right. Really helpful. Thank you.

Cool. Thank you.

Thank you. That concludes our question-and-answer session. I will now turn the call back over to Cynthia for closing remarks.

Thank you, everyone, for joining us today. We look forward to hopefully seeing a number of you at our virtual Investor Relations Day. The registration is now live on our IR website, and that is going to be on Tuesday, March 19th. Thank you.

This concludes today's conference call. Thank you for your participation and you may now disconnect.